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Central Market Opens New Smaller Prototype in Dallas

February 24, 2012

San Antonio, Texas-based Central Market, the gourmet grocery store division of supermarket chain H-E-B, last week opened its ninth store in the heart of North Dallas. At 35,000 square feet, the store is half the size of its other eight units, which are located in Austin, Houston, San Antonio and the Dallas-Fort Worth area. Chris Potestio, Central Market’s wine and beer business development manager, says the new format will allow the company to take better advantage of urban real estate opportunities. According to reliable industry estimates, Central Market had strong growth last year with revenues hitting $55 million. Central Market’s owner H-E-B operates 340 outlets throughout Texas and Mexico and had 2011 revenues of nearly $18 billion. Shanken News Daily recently spoke to Potestio about wine trends and his company’s more aggressive pricing policy.

SND: Is your new Dallas store a new prototype for Central Market?

Potestio: We believe it is, and we expect to be looking for another site in the next few months. We’ve been concentrating our growth on our conventional side, in H-E-B, as we’ve added another 40 stores to our total network since 2008. When we at H-E-B chart our performance against every national retailer, from Walmart and Target to regional grocers like us such as Publix and Wegmans, we’ve had record sales four years in a row. So we’ve been very fortunate, but we’ve changed our business, to keep pace with our customers and the economy. On the Central Market side, we’ve built our growth organically, using wine to drive more traffic rather than adding new units.

SND: As an upscale grocer that wasn’t particularly focused on being price competitive, has Central Market been forced to adapt to the changing economic environment?

Potestio: On our wines, we’ve become very aggressive. Whether it’s against Whole Foods, Costco or Total Wine, we match penny for penny. That’s a big, recent change. We want our customers to have a one-stop shopping experience. As a specialty grocer, we have a large wine department, where you can find everything from a $5 Vinho Verde to unique, allocated wines found at restaurants, and all the way up to First Growths. Along with that, our customers are able to buy their groceries and complete their shopping list.

SND: So even your well-heeled customer has become more concerned about price?

Potestio: Absolutely. I think that after 2008, no matter where people were on the socioeconomic scale, they were trading down—or at least were more cognizant of how much they were spending. Particularly in 2008 and 2009, when the on-premise business was suffering, Central Market benefited because people were staying home and treating themselves to a nice meal and a bottle of wine.

SND: Did that trend continue in 2010 and 2011?

Potestio: Obviously, the dust has settled a bit. It’s great to see the restaurant business picking up, but that also continues to push us to pique the customer’s interest through selection and pricing.

SND: How is the competitive environment changing in Texas?

Potestio: In wine, there’s been a major influx of competitors at retail. Trader Joe’s is coming into Texas in a big way, and we all know they hang their hat on Charles Shaw and the lower end in wine. Whole Foods has reacted and has a bigger presence. Spec’s continues to expand in Texas, and David and Robert Trone are opening their first Total Wine store in Texas this summer. I worked at Total Wine for many years, and I have great respect for them. I think this influx is good for everyone. It makes us all push our business that much further.

SND: Not everyone shares your enthusiasm.

Potestio: To me, that’s what retail is all about. It’s not productive to say, “Oh my gosh, I can’t believe this guy is coming into my market, what are we going to do?” One of the great things about our company is that we respond by asking ourselves what we need to do, what resources we need to raise our game. That’s what has kept us in a leadership role during these past four shaky years. From a trend standpoint, our opportunity in the past year has been more on the premium side of wine, not on the value side.

SND: Even during a slow economy?

Potestio: Consumers continue to educate themselves about wine. As they work their way up the ladder, they seek out not only new, but better quality wines. We could all get stuck trying to lure customers with $2.99-$3.99 wines, and while that might be great for entry-level customers, we know that wine’s consumer base is growing exponentially every year—and that more consumers are working their way up the ladder. We conduct tastings in our stores, usually during peak traffic times. For our customers, it’s much easier to justify purchasing a better wine if they can taste it first. In conventional grocery stores, the average range for a bottle of wine is $8-$9. Our average range is closer to $12-$13. But if you can show them what a $25 Chardonnay tastes like, or even a $35 or $40 Chardonnay, that can introduce them to a whole new world of quality.

SND: What regions and varietals are you having success with lately?

Potestio: In Texas, domestic Cabernets still rule. Price points had been coming down. Our customers knew that some wines that were $70 were dropping down to $55. Now things are going the other way. We’ve seen imports trending way up, with France and Italy back to where they were in 2008. I think France is doing a much better job, and we’ve partnered with the trade commissions recently to help educate our customers on the value wines we get from the Rhone and from Bordeaux.

SND: Do you direct import?

Potestio: We do. Obviously, we have to follow the three-tier system, but my job is meeting directly with the wineries and establishing relationships to create secondary labels, alternative labels.

SND: What percentage of your wine sales are direct imports?

Potestio: About 20%. We call them Central Market Selections. The label is mainly from the winery of origin. We want our customers to know that these wines over-deliver for the price and that they can only find them here at Central Market in Texas.

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